If you are creating a Trust or you’re set to receive one, there are a few things you might be considering. How exactly a Trust will affect your life or impact the lives of those you leave a Trust to is probably among your first thoughts on the matter. After all, Trusts are created to help pass on assets, control finances, and see that wishes are carried out. A Trust can be a responsible financial decision and a great tool to make use of when creating an Estate Plan.
But there is an aspect of Trusts that should be considered whenever one is created: who will be managing it? All Trusts require some level of administration. Many factors, however, will go into how much management will be required. The assets involved, the complexity of an estate, the recipients of the assets, and many other variables should be taken into consideration when creating a Trust and determining who will be named as Trustee.
First let’s go over a few main terms you’ll hear a lot about when looking into Trusts and Trust management. The Trust is the legal relationship that is created whereby assets are managed. The Trustor is the person who creates the Trust, into which they will place some or all of their assets. The person who will receive these assets is known as the Beneficiary. And then there’s the Trustee, who is tasked with distributing the assets to the Beneficiary and handles matters relating to the assets. The Beneficiary and the Trustee can be the same person, but sometimes a Trustee who is not the Beneficiary should be put into place.
What is a Professional Trustee?
A Trustee who is not the Beneficiary of a Trust, and who oversees management of that Trust in a professional capacity, is known as a Professional Trustee. A Professional Trustee is also sometimes known as a Fiduciary. The Professional Trustee can be a person or an institution hired to handle a Trust for one or more Beneficiaries.
When is hiring a Professional Trustee a good idea?
A Professional Trustee can be a good choice to manage a Trust for several key reasons:
A Professional Trustee is objective
Trusts are often used within families. That means all the intricate family dynamics of spouses, in-laws, step-parents, remarriage, sibling relationships, and more can come into play. When assets such as money and property are at stake, emotions can run high. Family members who agreed to uphold a Trustor’s wishes may have a sudden change of heart and start taking sides or behaving in self-serving ways. A Professional Trustee can be a much-needed neutral party in these situations. As a Fiduciary, they are upheld to legal and ethical standards and are able to handle management of assets in a fair and unbiased manner.
A Professional Trustee keeps liability in mind
While the term Trust or Trust-fund usually has positive associations (stereotypes aside), receiving a Trust means more than coming into a windfall or maintaining a lifestyle. There are tax considerations and legal ramifications that can come with Trusts too. A financially savvy family member may know the basics of money management but can be unaware of some of the intricacies and complexities of an individual Estate left in Trust. A Professional Trustee will be well-versed in tax laws and Estate management requirements; and since a Professional Trustee can be sued by a Beneficiary for failing to properly manage a Trust, the Professional Trustee will work to see that a Trust is kept free of tax liability, bookkeeping errors, and general mismanagement.
A Professional Trustee is skilled
If a Trust requires a significant amount of attention or assets are to be invested, a Fiduciary will have the wealth-management skills and investment knowledge to assist in maintaining or growing a Trust for a Beneficiary.
Who might need a Professional Trustee?
There are several different types of Trusts and different uses for them, and not every Trust will require professional management. But there are times when using a Professional Trustee makes the most sense. Bringing on a Professional Trustee for the benefit of the Beneficiary of a Trust can be a good idea when:
The beneficiary is a minor
If the recipient or recipients of a Trust are under the age of 18, they cannot legally manage their Trust on their own. Technically, a Beneficiary cannot even receive a trust until of age – at least 18 (and maybe older if stipulated by the Trustor.) What happens to the Trust until then? What about if they need money for living expenses, school fees, and the like? A minor Beneficiary will need to have a Trustee designated to manage their Trust for them until they can receive it. A Trustee can be named by the Trustor or appointed by a court sometimes. Hiring a Professional Trustee, though, can be a good way to see that the child’s Trust is managed properly, and necessary expenses are covered by the Trust, if possible until the Beneficiary is able to receive it.
The beneficiary has a disability or special needs
If the person set to receive a Trust has special needs or a disability – especially if the condition may affect their ability to handle finances on their own – a Professional Trustee may be called for. A Fiduciary can oversee a Trust’s use, including housing and healthcare costs, and provide financial guidance in lieu of a family member, friend, or another caretaker.
When a family member is no longer willing or able to serve as Trustee
A relative or friend may have been serving as Trustee with no problems, but now they no longer want the responsibility of handling a Trust for another person or they aren’t up to the task anymore. When this happens, bringing a professional onboard might be the right choice.
When the estate contains high-value assets
Sometimes a Trust will be established to simply transfer an asset such as a house or a car after death. It’s sort of a one-time transaction and the asset – once it belongs to the Beneficiary – won’t need to remain in a Trust. Other times, however, a Trust may include a group of rental properties, active investments, and large sums of money. Some or all of those assets might be left in the Trust and create profits, losses, and expenses. Finding a Professional Trustee might be the best bet.
When schedules and obligations don’t permit
Managing a Trust can take time and dedication. If the Beneficiary or Beneficiaries lead busy lives and have their own careers and obligations to tend to, there might not be enough time in each day to handle a Trust. But a Professional Trustee does just that day in and day out.
When it’s considered to be in the best interest of the Beneficiary
Even if the beneficiary is of-age and competent, there are times when a Trustor may decide that it's best if there is someone to keep an eye on the Trust. A Beneficiary who doesn’t have the best history of handling money or who may be likely to mismanage their Trust fund may require a Professional Trustee.
Professional Trustee fees
Professional Trustees are compensated for the work they do in managing a Trust. Typical fees for a Professional Trustee can range from 1-3% of the total assets in the Trust. This can vary depending on the amount of work that the Trustee will need to do.
Are you ready to set up a Trust? At Trust & Will, a leading online Estate Planning service, we can help you create a comprehensive and customized Estate Plan online. With online, State-specific documents, you can get the Trust or Will that you need. Contact us today with your questions and to learn more about deciding if you should use a Professional Trustee.